However, even though Japan had opened itself in economic activities, the nation remained a closed country as it would take time for people to adjust themselves to open world both culture and language. It also seemed difficult because Japanese were patriotism; they were loyal to Japanese companies and preferred using Japanese-made products.
Education and Economic structure reform were complementary[11]. Education would get the citizens prepared for the market liberalization where it involved a lot of interaction with foreign countries. Prime Minister Hashimoto did realize the importance of education and his plan for new education system addressed the need to change in order to catch up with globalization. However, it would take time for this young generation until they could play significant role in economic activities. In my opinion, hiring more teachers from overseas and training the teachers would be a fundamental step for this progress. The curriculum and the teaching style may not be able to change quickly either. More importantly, the new idea must go deep into the individual.
In addition, I also agreed with the deregulation because lifting the complex laws and regulations made it much easier for other countries to invest in Japan. The Japanese, in turn, also had a better access to the international financial market, which could weaken the yen and bring back export’s competitiveness.
Another point I would like to make here is that Hashimoto government should have emphasized on child birth rate that was declining during the period. This is because population size is very important for economic growth. Japan needed more working-age people because baby boom generation was approaching their 50s and 60s. So, I think that there should have been a policy to promote childbirth[12].
Last, there was a need to decentralize power in among ministries and some institutions because in that way projects and policies can be done much faster[13]. The power should be spread in appropriate manner. For example, in the case of Ministry of finance that played a vital role in capital market could cause stagnation because the decision-making was made more slowly. The seniority system also should be adjusted to the fast growing world because such system could hold down potential, talented young aged people who could drive the organization forward more promptly.
4. Japan now has a new Prime Minister, comment on the present economic and political situation in Japan?
The current Prime Minister of Japan is a former Finance Minister, Naoto Kan. He has stepped up as a Prime Minister since June 2010. Here are some of the main procedures He pledged to do, as follows:
First is to reduce Japan's huge public debt and subsequently he also pledged to limit new government bond issuance at, or below, 44.3 trillion yen and restrict policy-related spending to around 71 trillion yen. So far, it seems that he failed to address this plan as it is predicted that that the new debt issuance could raise to 49.5 trillion yen in 2012 and 51.8 trillion yen in 2013[14]. Also, Japan’s sovereign debt was rated to AA- from AA by ratings agency, Standard & Poor's [15].
Second is to bring about economic recovery and close ties with Washington. There has been a steady slowdown in export growth between February and October 2009 but in Dec 2010 export growth has accelerated for the second straight month[16]. This is a sign of stronger global demand; however, it is uncertain that the growth will continue in the next few months, because the yens are still getting stronger and stronger. In contrast with economy recovery plan, PM Kan has also put forth a social security reform, one of his priorities, by raising five-percent consumption tax to help building funds for elderly as the workforce continues to shrink in size. However, I disagree with such idea; in my opinion, the economy is still not doing well and raising tax will only decrease consumption. This is because investments are decreasing and there is no source of income from business coming into Japan’s economy. Thus, unless exports continue to grow, which is rather unlikely as Yen is still getting stronger, economy will not recover. In turns, the reduction in local consumption due to the increased tax will further bring the economy down.
Third is to bring about closer engagement with East Asia including China and Russia. We see that PM Kan did succeed in making agreement with some countries, such as Vietnam. “Vietnam will help to supply Japan with rare earth minerals used in high-tech products,” said Nguyen Tan Dun, Vietnamese counterpart[17]. However, one of the concerns is that Kan was criticized by many for not handling the issue well enough, particularly, during the business meeting with Russian, by mentioning about the possession of Island left by Soviet Union whether it belongs to Japan and Russia. It is important for Japan to build a good relationship with Russia since Russia is one of the biggest oil’s exporters and Japan relies heavily on this import. Thus, if Kan could pursue negotiation with East Asian countries, this would become one of the main keys in driving success into Japan’s economy.
Fourth is to create a party in which all members can stand up together so that the decisions can be made smoothly. Kan wants to make some decisions with regards to tax and social security, but the opposition parties are not supporting him[18]. In simple terms, Kan has a divided government or parliament. So it is tough for him to make decisions or to come up with a consensus. If the decisions cannot be made, there is no way for Kan to do anything for Japan. Kan is still unable to have a united government who can peacefully harmoniously manage the country. LDP is even asking him to step down (in another word, calling for a new election) if he is not able to form any reform plans within the deadlines. Kan is now left with no choice but to accomplish his vows. However, if he could not do so, then Japan will enter the very same cycle again, where there is a frequent change in Prime Minister and policies, interrupting and discontinuing economic and social reforms to be successfully realized.
5. How long can Japan’s current account remain in surplus? Is it a good time to buy Yen?
The graph shows the current account over from 2009 to January 2011[19]. Here, the balance of trade is the major component[20]. The data shows that Japan exports to the major partner, China, more than doubled that of in December 2010 worth 6.77 trillion yen. This is resulted from a strong demand for cars and semiconductors by Chinese. For Imports, it also increased due to the consumption spending that is declining but at a decreasing rate[21]. We see that there is an upward trend; Japanese is picking up its fragile recovery. So, the current account surplus will continue.
It is arguable whether to buy yen or not. In short term, Yen is still expected to appreciate because there is a demand for Yen by a number of factors. For example, at presence many Japanese companies are working to repay its debt occurred after the asset bubble. Japanese prefer Japanese government bond and reduce consumption. These activities cause the yen to appreciate. It is forecasted that the yen will depreciate from 83.5 yen/dollar in Jan 2011 to 88/dollar yen in Jun 2011 but will strengthen again in July to be 87 yen/dollar according to the Financial Forecast Centre[22]. So, if one speculates for short-run profits, it is attractive.
However, in long term, it is probably not as attractive to buy Japanese Yen because the future of economy in Japan is rather unstable. The frequent change in the government means the policies also change, making it risky to invest. Moreover, They are aiming to prevent Yen from appreciating further to enhance competitiveness of exports. Another reason is the uncertainty of China. Many countries especially US are putting pressure on China to float Yuan[23]. If this happens Yuan will grow strong and this will lead to the depreciation of Yen.
6. For non-Japanese firms, is this a good time to invest in Japan?
There are wounds and scars in Japanese economy as it is not doing well internally. There are many matters that are unsolved in the country. The economy has been stagnating. Its GDP has not expanded meaningfully in the past three decades[24]. The domestic consumption slumped as the Japanese became pessimistic after the stock bubbly in 1990s. They do not spend but save. They are reluctant to change their behaviors. In addition, as we can see from the past, both fiscal and monetary policies could hardly stimulate the growth. Another risk is politic instability causes uncertainty to economic policies. These factors have contributed a negative impact on the Japanese business.
Concerning the demographic aspect, the number of birthrate, youngsters as well as middle age population is in decline. Currently, elderly consists of 22.2% of the population[25] and is expected to increase every year. These people though do not have a lot of saving but the government is contributing a considerable budget for social security. Currently, Japan is hiring nurses from Indonesia and the Philippines. If Kan government is still in position and social security maintain as the priority, then investing in healthcare sector might be ideal.
7. What is the present structure and state of the Japanese economy (GDP in terms of manufacturing, service, agriculture as well as in terms of C+I +G+E-M; inflation, interest rates, unemployment)?
Due to the higher value of the Yen, Japanese manufacturing activities decline as exports shrunk. It is evident that Japan Manufacturing Purchasing Manager’s Index (PMI) has dropped to 46.9 in November 2010; any value below 50 shows a contraction.[26]It also shows in Japan Auto Report Q1 2011[27] that both Honda motor and Toyota experienced in sales drop. This is no doubt as automobiles have been one of the biggest manufacturing contributing to Japanese exports.
There is a positive sign for both service and agriculture sector. However, agribusiness contributed less to the small increase in GDP. Sentiment in Japan’s service sector was viewed positive in December 2010 due to robust sales in seasonal product and increase corporate capital spending[28]. For agribusiness, it tends to move in direction with the growth of economy.
“Capital spending may increase on plans to reduce the corporate tax rate, but the positive effects could be limited amid a drop in business confidence triggered by weak consumer spending”, according to The Japan Times[29]. It is expected that both consumption and capital spending will be weak in 2011 but better than last year. Government spending will rise in accordance with PM Kan to increase spending in social welfare, education and public work projects[30]. Lastly, it is positive figure for next export (refer to question 6).
Bank of Japan keeps the interest rate low at zero percent in a hope to attract investment. Referring to Consumer price index, it has been falling but at a decreasing rate reaching 0.7 percent in December 2010 last year[31] as spending adjusted slightly.
Unemployment rate decreased from 5.1 percent to 4.9 percent according to Bloomberg[32]. This is also an effect rising from the Japanese package to tackle this problem. As reported in the news, “the Japanese parliament passed a new $61bn stimulus package aimed at creating jobs and reviving the country's faltering economic recovery”[33].
In conclusion, GDP in fiscal 2011 will grow small. However, overall considering factors mentioned above, Japanese economy is picking up gradually.
8. What are the main present economic and social challenges faced by Japan?
There are three main Economic challenges. First, Strong yen worsen Japan’s exports, which is one of the main drives in economic growth. It is resulted from shrunk imports, as households are not confidence and reduced their consumption. The current account is improved making the yen appear strong and exports less competitive. The increasing demand for yen persists as the Japanese companies need to repay the debts occurred after the stock market bubble. China is escaping from foreign reserves diversification from US dollar and Euro to stable and strong Yen. Last is the expectation the US dollar will be printed more that Japanese Yen.
Second, deflation is another challenge that has been persisted in Japanese economy. Deflation and high manufacturing cost in Japan lower corporate profits; Thus, the business cannot expand. Consumer prices declined 0.4 percent from a year earlier, the statistics bureau said today in Tokyo[34]. Even though this the smallest drop since 2009, we see that deflation is still a concern in Japan. Despite lower consumer product price, the Japanese are reluctant to spend money. Again, the economy remain languish. We also see that even though the government used monetary policy to lower the interest rate down to zero, it could not discourage saving and boost spending as the Yen remain strong. As explained earlier, the new scheme of raising tax is also opposed to this.
Third, the government is planning to use fiscal policy to boost domestic spending, which will double public debt. It will pay off if it stimulates more consumption that then encourages further investment and creates more jobs leading to economic recovery. However, the government is aiming to improve social security as aging population is rising rapidly. This may result in further public debt if the economy does not improve and income from working-age group may not be enough to pay the funding.
There are two main social challenges. First, declining population and rising aging population means less labor force available for economic growth. There is less and less working-age population in Japan. This people will not only have to work harder and have less to spend due to tax cuts for social security, it also puts pressure on family structure for not being work-oriented and are unlikely to have children.
Second, the conservative and nationalistic nature of Japanese makes it more difficult for economic recovery. After asset bubble, people are risk averse, lose confident and prefer to hold on to their money. People are also nationalistic. They are used to domestic products and do not favor foreign goods. Thus, the decline in imports fails to weaken the yen and to deteriorate exports.
To conclude, Japanese individuals need to be aware of globalization and quickly adjust themselves. The government also need to come up with new growth strategy and plans to tackle this challenges.
References
http://www.ftadigest.com/fta/newsAnalysis262.html
www.ru.ac.th/korea/article1/article13.pdf
http://aparc.stanford.edu/research/causes_of_japans_economic_stagnation/
http://www.brandage.com/Modules/DesktopModules/Article/ArticleDetail.aspx?tabID=2&ArticleID=2718&ModuleID=21&GroupID=872 Q3
http://www.asiaone.com/News/Latest+News/Asia/Story/A1Story20101031-244995.html
http://www.cnbc.com/id/41226381
www.reuters.com/article/idUSTRE70P1NA20110126
agriculture
[1] http://en.wikipedia.org/wiki/Economy_of_Japan
[2] http://en.allexperts.com/q/Economics-2301/Differences-Mercantilist-Neo-Mercantilist-1.htm
[3] http://en.wikipedia.org/wiki/Keiretsu
[4] Case Study : Japan Beyond the bubble pg 2-3
[5] ญี่ปุ่น: ประวัติศาสตร์การเมืองและเศรษฐกิจ Japan: Politics and Economic History p 44-45
[6] ญี่ปุ่น: ประวัติศาสตร์การเมืองและเศรษฐกิจ Japan: Politics and Economic History p 47
[7] Case Study: Japan: Beyond the Bubble P3
[8] ญี่ปุ่น: ประวัติศาสตร์การเมืองและเศรษฐกิจ Japan: Politics and Economic History p 46 www.ru.ac.th/korea/article1/article13.pdf
[9] www.advisoranalyst.com/glablog/tag/financial-bubble/
[10] ญี่ปุ่น: ประวัติศาสตร์การเมืองและเศรษฐกิจ Japan: Politics and Economic History p 47
[11] Case Study: Japan: Beyond the Bubble p 10-11
[12] Case Study: Japan: Beyond the Bubble p 9
[13] Case Study: Japan: Beyond the Bubble p 6
[14] http://in.reuters.com/article/idINIndia-54416720110126
[15] http:///uk.reuters.com/article/idUKTRE70Q20G20110127
[16] http://www.businesstimes.com.sg/sub/latest/story/0,4574,423686,00.html?
[17]
[18]
[19] http://www.tradingeconomics.com/Economics/Current-Account.aspx?Symbol=JPY
[20] http://www.tradingeconomics.com/Economics/Balance-Of-Trade.aspx?Symbol=JPY
[21] http://www.tradingeconomics.com/Economics/Imports.aspx?Symbol=JPY
[22] http://www.forecasts.org/yen.htm
[23]
[24] http://www.dailymarkets.com/stock/2010/07/12/why-you-shouldnt-invest-in-japan/
[25] https://www.cia.gov/library/publications/the-world-factbook/geos/ja.html
[26] http://www.dailyforex.com/forex-fundamental-analysis/2010/12/Higher-Yen-Hits-Japanese-Manufacturing/6640
[27] http://www.marketresearch.com/product/display.asp?productid=6001359
[28] www.reuters.com/article/idUSTKU10584320100208
[29] http://search.japantimes.co.jp/cgi-bin/nb20101231a3.html
[30] http://www.breitbart.com/article.php?id=D9K7KRE01&show_article=1
[31] http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?Symbol=JPY
[32] http://www.bloomberg.com/news/2011-01-27/japan-s-consumer-price-decline-eases-to-0-4-as-global-food-prices-climb.html
[33] http://www.bbc.co.uk/news/business-11871325
[34] http://www.bloomberg.com/news/2011-01-27/japan-s-consumer-price-decline-eases-to-0-4-as-global-food-prices-climb.html